Application for Further Review of Protest No. 2402-96-100028; Denial of HTSUS subheading 9802.00.80 treatment to stonewashed jeans; Levi Strauss

HQ W560761 April 2, 2001 CLA-2 RR:CR:SM W560761 MLR CATEGORY: Classification TARIFF NO.: 9802.00.80 Port Director U.S. Customs Service 797 S. Zaragosa Rd. El Paso, TX 79907 RE: Application for Further Review of Protest No. 2402-96-100028; Denial of HTSUS subheading 9802.00.80 treatment to stonewashed jeans; Levi Strauss Dear Sir: This is in reference to your memorandum dated November 14, 1997, forwarding a protest and application for further review filed by Rudolph Miles & Sons, Inc., on behalf of their client Guess?, Inc., contesting the denial of the duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to jeans assembled and stonewashed in Mexico. FACTS: The articles at issue are men’s and women’s jeans that were assembled and stonewashed in Mexico. The jeans were made from components that were cut-to-shape in the U.S. ISSUE: Whether the stonewashed jeans qualify for subheading 9802.00.80, HTSUS, treatment. LAW AND ANALYSIS: Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: [a]rticles ... assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting. All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24). Section 10.14(a), Customs Regulations {19 CFR 10.14(a)}, states in part that: [t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components. Section 10.16(a), Customs Regulations {19 CFR 10.16(a)}, provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, lamination, sewing, or the use of fasteners. Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. See 19 CFR 10.16(a). However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c). Section 10.16(c)(4) specifically provides that the “chemical treatment of components or assembled articles to impart new characteristics, such as showerproofing, permapressing, sanforizing, dyeing, or bleaching of textiles”, is not considered incidental to the assembly process. In this case, subheading 9802.00.80, HTSUS, treatment was denied because the jeans were stonewashed in Mexico. Protestant files this protest based on the U.S. Court of International Trade’s decision in Levi Strauss & Company v. United States, 969 F. Supp. 75 (1997), which found that the “enzyme-washing process”, commonly referred to as “stonewashing”, was incidental to assembly because the cost of the process relative to the cost of the fabric components and the capital invested were minor, the per garment wash time was minor, and stonewashing was logically performed during assembly. In Levi Strauss & Co. v. United States, 527 U.S. 1001 (1999), in accordance with United States v. Haggar Apparel Co., 526 U.S. 380 (1999), the Supreme Court of the United States remanded the case to the U.S. Court of Appeals for the Federal Circuit. In Haggar, the Supreme Court held that subheading 9802.00.80, HTSUS, was ambiguous for purposes of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 842-44 (1984), and therefore subject to the analysis required by that case. Thus, if 19 CFR 10.16(c) is a reasonable interpretation and implementation of the ambiguous statutory provision, it must be given judicial deference. Upon remand, the Federal Circuit reversed the Court of International Trade and held that Customs correctly applied 19 CFR 10.16(c) to cover the enzyme washed jeans, as there were no disputes of any of the material facts and it was clear that the process lightened the color and softened the fabric via chemical activity. Accordingly, since this process fell within the reasonable scope of the phrase “bleaching of textiles” and “chemical treatment”, classification under subheading 9802.00.80, HTSUS, was precluded. 222 F.3d 1344 (Fed. Cir. 2000). In this case, the protestant states and does not deny that the jeans covered by this protest were stonewashed in Mexico. As in the Federal Circuit’s opinion in Levi Strauss where the court found that the enzyme wash fell within the reasonable scope of the phrase “bleaching of textiles” and “chemical treatment”, we find that stonewashing also is a “chemical treatment of … assembled articles [that imparts] new characteristics”, as set forth in 19 CFR 10.16(c)(4). The agency is in the best position to examine the imported articles, and to ensure that the statute is uniformly applied. Accordingly, pursuant to 19 CFR 10.16(c)(4), we find that the stonewashed jeans were subjected to operations that were not incidental to the assembly process. Therefore, the jeans do not qualify for subheading 9802.00.80, HTSUS, treatment, and this protest should be denied. HOLDING: On the basis of the information submitted, pursuant to 19 CFR 10.16(c)(4), we find that the stonewashed jeans were subjected to operations that were not incidental to the assembly process. Therefore, the jeans do not qualify for subheading 9802.00.80, HTSUS, treatment, and this protest should be denied in full. In accordance with Section 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel, and to the public via the Customs Home Page on the World Wide Web, the Freedom of Information Act, and other public distribution channels. Sincerely, John Durant, Director Commercial Rulings Division